A glimpse into Making Tax Digital
With many organisations in the public and private sector taking a step towards being paperless, it only seems obvious that HMRC has announced new legislation to Making Tax Digital (MTD). Mistakes in recording tax due to human error aren’t uncommon, in fact, it is anticipated £9 billion pounds in lost in tax annually (Gov UK). From the onset, MTD seems to be a quicker, more modern and accurate method of recording income and expenditure, but what do we know so far?
When will Making Tax Digital be enforced?
The government announced a written ministerial statement in July 2017 stating that Making Tax Digital would be formally mandated in April 2019 (a year later than previous intentions for April 2018). The delay in the introduction of MTD is welcome, however, businesses should still be evaluating how this legislation will impact their organisation next year.
Who does Making Tax Digital apply to?
Making Tax Digital applies to any business in the UK which operates above the VAT threshold of £85,000.00 annually. It has been clarified that the only exemption to making tax digital are organisations who are unable to engage digitally due to circumstances such as inadequate broadband accessibility. As expected many tax advisers and chartered accountants will be affected by Making Tax Digital as well as millions of small, medium businesses.
Making Tax Digital and Brexit
If you keep up to date with politics you will have already realised that the new tax legislation is due to be enforced at the same time Britain is due to leave the EU. VAT and Customs duty is likely to be significantly impacted by Brexit; particularly in relation to the VAT treatment of transactions between the UK and EU. Businesses will need to both understand the tax-technical changes to the rules and ensure that their accounting systems and processes deal with changes to such transactions correctly via the new reporting requirements of MTD.
Pros and Cons of Making Tax Digital
Once in force, Making Tax Digital certainly will reap benefits for businesses in terms of instant access to records and implementing an organised system. For example, businesses will be able to access tax information in one single place allowing for easy analysis to check mistakes and review to plan budgets more effectively. Working to a more accurate report will allow management to enforce improvements in business performance.
Making tax digital also removes the need to complete self-assessment tax return forms each year, although taxpayers will still need to make end of year adjustments to their digital tax accounts in addition to quarterly returns.
Although there are long terms benefits, the change from manual calculation to reporting tax digitally be quite a leap for some organisations. Businesses will need to seek third party suppliers to source and purchase the software required. A survey by UK200 Group estimated 65% firms still do not use accounting software. This will, of course, see transitional costs including the purchase of software, additional accountancy/agent costs and staff training.
For more information on Making Tax Digital, please click here to visit the government website.